why is it important to be able to adjust the budget to different activity levels as...

why is it important to be able to adjust the budget to different activity levels as is the practice and flexible budgeting?

Expert Solution

By preparing the budget at different levels of activity :

*A firm can get to know the level of activity required to be aimed for highest profit, by maximum utilization of the resources available.

* A firm can get to know the requirements of funds, at the level of targeted activities. By gathering the entire information in persuance of both variable and fixed cost.

* This will help to analyze the performance of manager as well, if he fid not performed at the level of activity leading to maximum profit, then the firm's resources will be said to be underutilized.

Flexible budgeting is preparing budgets at different level of activity. Like on basis of units of output, and this is one the most beneficial tool of budgeting, as it help the organization to understand better as which level the firm should operate to earn maximum from the limited resources. From the budget the firm will make choice based on the resources it possesss, for example if the firm had $2 lac then it will aim highest profit with maximum cost of $2 lacs. Thus, it is very important.

ekkarill92 answered 1 year ago

How to prepare a flexible budget for different levels of activity

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